SIR Royalty Income Fund Announces Filing of SIR Corp. Fiscal 2021 Third Quarter Results

BURLINGTON, ON, June 23, 2021 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today announced that SIR Corp. ("SIR" or the "Company"), the operating entity from which the Fund earns equity income, has filed its financial results for the 12-week and 36-week periods ended May 9, 2021 ("Q3 2021" and "YTD 2021", respectively). SIR's unaudited interim consolidated financial statements and management's discussion & analysis ("MD&A") for Q3 2021 can be accessed via the Fund's profile on the SEDAR website at www.sedar.com under "Other", or the SIR website at www.sircorp.com/sir-royalty-income-fund/financial-reports.

Q3 2021 Business Update

• During Q3 2021, SIR's operations were adversely impacted by the COVID-19 pandemic and the related series of increasing restrictions in the various regions it operates. Please refer to the Q3 2021 MD&A for additional details on the timing and duration of various restrictions that impacted SIR's operations.
  
  
• Reduced services and restaurant closures have resulted in material declines to sales at SIR restaurants. As a result of the significant decline in sales at SIR restaurants, Pooled Revenue and royalty income in the SIR Royalty Limited Partnership (the "Partnership"), along with the Fund's equity income from the Partnership and cash available for distribution to unitholders of the Fund, continues to be significantly reduced compared to prior years.
  
  
• The Partnership continued to defer the collection of royalties and the Fund continued to defer the collection of interest on a loan owing by SIR to the Fund (the "SIR Loan") as part of the conditions required by SIR's senior lender to grant SIR a series of waiver and amending agreements under its Credit Agreement.
  
  
• On March 31, 2021, SIR entered into an amending agreement (the "Seventh Amending Agreement") to its Credit Agreement which, among other things, extended certain waivers from March 31, 2021 to July 6, 2021. Additionally, this amendment includes the addition of a new $6.25 million Business Development Bank of Canada guaranteed Highly Affected Sectors Credit Availability Program facility to the Credit Agreement.
  
  
• SIR has been deemed eligible for the Canada Emergency Wage Subsidy ("CEWS") program. As a result, SIR has received a subsidy from the federal government to partially offset certain of its wage costs starting in mid-March 2020. The federal government recently announced an extension of the CEWS program until September 25, 2021, and SIR expects to continue to remain eligible for the program.
  
  
• SIR has been deemed eligible for the Canadian Emergency Rent Subsidy ("CERS"), which provides support to businesses to partially offset occupancy costs. During periods where indoor dining is mandated to be fully closed, SIR may also be eligible to apply for the 25% lockdown support top-up. SIR has received rebates under this program beginning on September 27, 2020.
  
  
• SIR has been deemed eligible for the Ontario COVID-19 Energy Assistance Program which provides support to businesses to partially offset the cost of energy bills and property taxes during certain lockdown periods. SIR received a rebate under this program on January 4, 2021.
  
  
• Effective March 31, 2021, SIR permanently closed the Canyon Creek location in Vaughan, Ontario.

Subsequent Event

On May 31, 2021, SIR entered into an amending agreement (the "Eighth Amending Agreement") to its Credit Agreement.  With the vaccine rollout in Canada now well advanced and the economic outlook improving, SIR's Lender has approved the resumption of current royalty payments and interest on the SIR Loan, as well as a framework to enable SIR to catch up on deferred royalty payments and interest on the SIR Loan by July 6, 2022. The necessary agreements, which are expected to enable the Fund to re-commence distributions in the near future, have been executed. Distributions are expected to be modest at first and increase over time. The key details of the Eighth Amending Agreement are as follows: 

• SIR's Credit Facilities have been extended until July 6, 2022, with appropriate adjustments to its covenants.
  
  
• Royalty payments on current sales to the Partnership and interest payments on the SIR Loan to the Fund are to recommence effective July 7, 2021.
  
  
• SIR will be entitled to begin repaying deferred royalty payments and interest on the SIR Loan under the condition that at least 25 restaurants have, for six consecutive weeks, been allowed the use of at least 50 indoor dining seats and the use of their patios (with social distancing). The repayments, which on a net basis amount to approximately $4.8 million as of May 9, 2021, are expected to be made in equal monthly installments such that the deferred amounts are targeted, absent and defaults occurring, to be fully repaid by the Credit Facility maturity date of July 6, 2022. The aforementioned repayments on a net basis, of approximately $4.9 million as of May 9, 2021, represents Management's estimate of the net amount of pre-tax distributable cash that will attribute to the Fund Unitholders' as a result of the repayment of these deferred amounts. This estimate relates to the amounts deferred during the period of April 1, 2020 up to and including May 9, 2021. This includes royalty payments from March 9, 2020 through to and including May 9, 2021 (6% royalty on the actual pooled revenue for those 61 weeks). The amount also includes interest on the SIR Loan over the same period. Net against these two amounts owing by SIR to the Partnership and the Fund are the amounts owing, over the same time period, from the Partnership to SIR attributable to SIR's share of the income of the Partnership for the Class A and Class C GP Units owned by SIR.
  
  
• A waiver has been granted allowing a covenant breach in Q3 2021, as SIR's EBITDA is short of the minimum target in the quarter due to the impact of the unbudgeted "third wave" of COVID-19 cases.
  
  
• An amendment to the financial covenants have been granted by the Lender that includes only a Cumulative Minimum EBITDA Covenant. SIR will be allowed to miss quarterly projections by up to $3.5 million cumulatively prior to July 6, 2022.
  
  
• The definition of EBITDA has been amended back to the definition in the original credit agreement.
  
  
• An extension of certain temporary waivers has been granted until August 31, 2021, with others granted until the maturity of the loan. Also on May 31, 2021, the Fund and the Partnership entered into an Acknowledgement Agreement with SIR and its senior lender, providing a waiver for any and all existing breaches of covenants and events of default under the various agreements between SIR, the Fund, and the Partnership until July 6, 2022. As a result of the Acknowledgment Agreement, the Lender consented to the resumption of regular payments by SIR to the Fund and the Partnership.

Liquidity and Capital Resources

As at May 9, 2021, SIR had cash and equivalents of $0.6 million, compared to $1.6 million as at August 30, 2020, SIR's Fiscal 2020 year-end. As at May 9, 2021, SIR had drawn $36.8 million against the $52.2 million maximum borrowing under the Company's credit facility.

Prior to the COVID-19 pandemic, SIR was a viable going concern and was in compliance with financial and non-financial covenants as outlined in its Credit Agreement and the SIR Loan Agreement.

SIR has advised the Fund that its ability to meet its obligations for the next 12 to 18 months is dependent on its ability to obtain increased and extended financing through further amendments to its Credit Agreement and the availability of credit under the current Credit Agreement or other financing sources and/or additional government assistance to aid businesses.

SIR's ability to meet its obligations for the next 12 to 18 months also depends on, among other factors, the duration of restaurant capacity restrictions due to the pandemic, SIR's ability to return to increased or full operating capacity in the near future, Canadian economic conditions after bars and restaurants are able to fully reopen, the type and impact of any new government mandated pandemic-related operating regulations, and SIR's ability to negotiate longer term extended credit terms from its suppliers, including negotiating deferrals of rent obligations over the terms of its leases. SIR's insurer has denied any business interruption claims due to COVID-19 closures. However, SIR continues to pursue its claim through legal avenues. There can be no assurance this action will be successful.

About SIR Corp.

SIR Corp. ("SIR") is a privately held Canadian corporation that owns a portfolio of 53 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 37 locations; Scaddabush Italian Kitchen & Bar® with nine locations; and Canyon Creek®, with two locations. SIR also operates one-of-a-kind "Signature" brands including Reds® Wine Tavern, Reds® Square One and The Loose Moose®. All trademarks related to the Concept and Signature brands noted above are used by SIR under a License and Royalty Agreement with SIR Royalty Limited Partnership. SIR also owns one Duke's Refresher® & Bar locations in downtown Toronto, and one seasonal Signature restaurant, Abbey's Bakehouse®, which are currently not in consideration to be part of the Royalty Pool. For more information on SIR Corp. or the SIR Royalty Income Fund, please visit www.sircorp.com.

About SIR Royalty Income Fund
The Fund is a trust governed by the laws of the province of Ontario that indirectly has interests in the trademarks used by SIR.

Caution concerning forward-looking information

Certain statements contained in this news release, or incorporated herein by reference, including the information set forth as to the future financial or operating performance of the Fund or SIR, that are not current or historical factual statements may constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning the objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of the Fund, the Trust, the Partnership, SIR, the SIR Restaurants or industry results, are forward-looking statements. The words "may", "will", "should", "would", "expect", "believe", "plan", "anticipate", "intend", "estimate" and other similar terminology and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Fund, the Trust, the Partnership, SIR, the SIR Restaurants or industry results, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. These statements reflect Management's current expectations, estimates and projections regarding future events and operating performance and speak only as of the date of this document. Readers should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Risks related to forward-looking statements include, among other things, challenges presented by a number of factors, including: the impact of the COVID-19 pandemic; market conditions at the time of this filing; competition; changes in demographic trends; weather; changing consumer preferences and discretionary spending patterns; changes in consumer confidence; changes in national and local business and economic conditions; pandemics or other material outbreaks of disease or safety issues affecting humans or animals or food products; changes in tariffs and international trade; changes in foreign exchange; changes in availability of credit; legal proceedings and challenges to intellectual property rights; dependence of the Fund on the financial condition of SIR; legislation and governmental regulation, including the cost and/or availability of labour as it relates to changes in minimum wage rates or other changes to labour legislation and forced closures of restaurants and bars; laws affecting the sale and use of alcohol (including availability and enforcement); changes in cannabis laws; accounting policies and practices; and the results of operations and financial condition of SIR. The foregoing list of factors is not exhaustive. Many of these issues can affect the Fund's or SIR's actual results and could cause their actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Fund or SIR.  There can be no assurance that SIR will remain compliant in the future with all of its financial covenants under the Credit Agreement and imposed by the lender.  Given these uncertainties, readers are cautioned that forward-looking statements are not guarantees of future performance, and should not place undue reliance on them. The Fund and SIR expressly disclaim any obligation or undertaking to publicly disclose or release any updates or revisions to any forward looking statements, except as required by securities legislation. Forward-looking statements are based on Management's current plans, estimates, projections, beliefs and opinions, and the Fund and SIR do not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change, except as expressly required by applicable securities laws.

In formulating the forward-looking statements contained herein, Management has assumed that it will be successful in dealing with the effects of the COVID-19 pandemic and that business and economic conditions affecting SIR's restaurants and the Fund will return to normalcy within the medium term.  For more information concerning risks and uncertainties, please refer to the Fund's March 31, 2021 Annual Information Form, for the period ended December 31, 2020, and the Fund's most recent interim filings, which are available under the Fund's profile at www.sedar.com.

All of the forward-looking statements made in this report are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Fund or SIR.

SOURCE SIR Royalty Income Fund